IRAs in your 40s, 50s, 60s, and 70s |
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IRAs in Your Estate
If you haven't named a beneficiary for your IRA, do it now! Otherwise, the combined pinch of estate and income taxes could drastically reduce its value to your heirs. Only your spouse is exempt from paying estate taxes, but s/he will have to pay income tax on withdrawals, if the account is a traditional IRA.
Your spouse has the most flexibility in the use and distribution of these funds, including rolling the money into another IRA with new beneficiaries and beginning the required and minimum distributions (see IRAs in your 70s) based on their combined ages, rather than yours. But don't forget that beneficiaries who aren't spouses may have to pay estate taxes on IRAs, if the entire estate exceeds $625,000. That will increase to $1 million by 2006.
With no beneficiary, the IRA reverts to the estate, and all the money must be withdrawn within five years after the owner's death, when the tax bite could swallow most of the investment.
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